As even Reuters observes this morning when discussing the ongoing crude rout, "the market slide has triggered conspiracy theories, ranging from the Saudis seeking to curb the U.S. oil boom, to Riyadh looking to undermine Iran and Russia for their support of Syria." It appears said theories will continue raging for a long time, because as Saudi Arabia's oil minister who has been extensively in the news in the past couple (that means "two" as per Janet Yellen) of month explained, the biggest OPEC oil producer said on Sunday it would not cut output to prop up oil markets even if non-OPEC nations did so, in one of the toughest signals yet that the world's top petroleum exporter plans to ride out the market's biggest slump in years, and that the price of crude is not going up any time soon.
Which goes back to what we said on Friday, namely that in a paradoxical response, with crude prices crashing, the US is set to produce even more oil, not less, and the output in 2015 will hit a 42-year (if not record) high as all the marginal producers scramble to outlive their closest competitors and obtain as much precious cash for their product as they possibly can.
And it's not just the US, but the entire oil-exporting world that will have no choice but to proceed with the only known strategy when the price equilibrium experiences a sudden and dramatic collapse, making a mockery of everyone's budget: dumping.
Referring to countries outside of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Oil Minister Ali al-Naimi told reporters: "If they want to cut production they are welcome: We are not going to cut, certainly Saudi Arabia is not going to cut."
He added he was "100 percent not pleased" with prices but they would improve, although it was unclear when.
He blamed the fall in prices to half their levels of six months ago on speculators and what he called a lack of cooperation from non-OPEC producers.
It was unclear if here he is more focused on Russia, or the US shale industry.
His remarks at a conference in Abu Dhabi marked the second time in three days that the kingdom has signaled that it would not alter output levels, preferring to allow the market to stabilize on its own.
The determined tone of his comments was echoed by some other Arab oil ministers at the conference in the United Arab Emirates (UAE) capital. UAE Oil Minister Suhail Bin Mohammed al-Mazroui urged all of the world's producers not to raise their oil output next year, saying this would quickly steady prices. He did not elaborate.
Meanwhile as crude supply is not only set to rise, global demand continues to tumble, not only because of China slowing down and Japan and Europe in a recession, but because suddenly the deflationary mindset has spread like wildfire among the end-customers, who are happy to wait and buy on Thursday that oil barrell they would otherwise buy today... if it means getting it for10% cheaper.
The world is forecast to need less OPEC oil in 2015 because of a rising supply of U.S. shale oil and other competing sources, with no significant increase in world demand growth. Kuwaiti Oil Minister Ali al-Omair said OPEC did not need to cut production and would not hold an emergency meeting ahead of its next scheduled talks in June.
"I don't think we need to cut. We gave a chance to others (and) they were not willing to do so," he said, referring to contacts with non-OPEC producers before OPEC's meeting in November in Vienna.
And as a reminder, it was Naimi himself who several days ago blamed the collapse not on supply issues but pure and simple demand, or lack thereof:
There has been much debate whether the crude price implosion has been
due to excess supply or not enough demand. Here, courtesy of the oil
minister at the world's largest crude supplier, is the answer:
- NAIMI SAYS DEMAND FOR OIL SLOWED MORE THAN EXPECTED: SPA
- NAIMI SAYS GLOBAL ECONOMY SLOWDOWN LARGELY BEHIND MKT PROBLEM
Which, of course, to anyone with even the most rudiemntary logic and charting skills, should not come as any surprise.
What happens next? Well, we have a waiting game on our hands: when "asked about possible cooperation between members of OPEC, which include the world's lowest-cost producers, and non-member countries, Naimi replied: "The best thing for everybody is to let the most efficient producers produce".
Which translated means Saudi Arabia will patiently wait for those marginal producers who are currently losing cash to turn the lights out. It also means that until we find just who the first sovereign (or shale) casualty will be, crude prices are only going to go lower as the dumping strategy finally begins to bear results.